Following the recent media attention to the New Zealand Foreign Trust (“NZFT”) industry, John Shewan, appointed by the New Zealand Government to conduct a review on the product, has released his report and recommended that the NZFT offering is retained but with a significant increase in disclosure requirements.  But what does this mean in practice for NZFTs and can New Zealand continue to maintain its high international reputation by continuing its NZFT industry?

Firstly, to dispel a myth….

New Zealanders do not benefit from NZFTs – they are certainly not a way for New Zealanders to avoid or reduce their tax obligations.  Foreign trusts are simply a type of New Zealand trust that, if set up in a prescribed way (with a non-NZ resident settlor but NZ resident trustee and with basic disclosure of the trust made to the IRD on establishment), benefit from tax exemption in New Zealand.  This is simply because our tax laws tax the trust according to the residence of the Settlor and so, as the Settlor is not a NZ resident, there is no New Zealand tax payable.  However, the NZFT does not prevent tax arising in other jurisdictions payable by the Settlor and/or beneficiaries.  

NZFTs in the media glare

NZFTs have come under the spotlight recently due to the Panama Papers scandal.  Most people have heard about the Panama Papers, which were confidential documents leaked from a Panamanian law firm, Mossack Fonseca, that show how wealthy individuals are able to keep their personal financial information private through overseas structures.  Not all of the documents showed any wrongdoing, however, some papers showed that certain structures were being used for illegal purposes including fraud, tax evasion and money laundering.

Many countries were connected to the Panama Papers and New Zealand was one of those.  Following the leak, media reports in New Zealand claimed that NZFTs are used to facilitate these types of wrongdoing.  Claims like this can cause significant damage to our international reputation which led to the Government commissioning an independent enquiry on the NZFT’s disclosure rules and whether they are sufficient to maintain our international reputation.


Firstly, and importantly, the review noted that while there has been considerable media attention in New Zealand over the use of NZFTs, there has been little publicity in the international media.  The review also confirmed the OECD still views New Zealand as compliant with best standards.  However, the review concluded that the current NZFT disclosure regime is “not fit for purpose” and is “light-handed” and so it is evident that changes are required.  Abolishing NZFTs was never likely as they are largely a legitimate vehicle to manage family wealth and New Zealand is an attractive jurisdiction for overseas entrepreneurs to use due to our stable political, judicial and legislative functions.  However, to protect our reputation, a tougher system is required.

The key changes recommended for both new and existing NZFTs are:

  • NZFTs to be required to register with the IRD using an expanded version of the present IR607 notification form.  Details to be provided will include the name, address, country of tax residence and tax identification number of the NZFT’s Settlor, Protector, non-NZ resident trustee (if any), any person with effective control of the Trust and beneficiaries of fixed trusts.
  • A copy of the Trust Deed to be provided to the IRD on registration.
  • The register to be searchable by regulatory agencies but should not be public.
  • NZFTs to file an annual return detailing any changes on the information provided at registration and also annual financial statements, amounts of distributions paid/credited and the details of the recipient beneficiaries.
  • A fee of $500 to be payable both on registration and annually to the IRD.
  • The expansion of the anti-money laundering regime to lawyers and accountants who establish/administer NZFTs.

What does this mean in practice?

Although the review only made recommendations, the Government has announced that it will adopt the recommendations, on the whole, and introduce a Register for foreign trusts, with new legislation being drafted within the next month.

The introduction of a “Register” sounds dramatic, particularly as the historic attraction to international trusts has always been the privacy they offer.  However, the reality is that full confidentiality no longer fits in the modern global climate and the changes being proposed sit comfortably alongside international developments.  Presently 101 countries have signed up to the Automatic Exchange of Information (AEOI) agreement, which requires financial institutions to collate and report due diligence information on their clients to their local tax authorities, who in turn will share it with other AEOI countries. They can then use the information to ensure offshore income has been accounted for correctly in domestic tax returns.  This means that any bank or financial institution that holds money for an NZFT, either in New Zealand or elsewhere, will be required to collect information on the trust and share this with the AEOI countries and so NZFTs are likely to be disclosing frequently.

The disclosure requirements proposed by the review seek to ensure that New Zealand has full information on its NZFT but the reality is, for NZFTs, disclosure of information domestically and abroad will soon be standard.  Rather than a dramatic overhaul of NZFTs, the changes largely supplement the modern regime of information sharing for trusts. 

The introduction of a fee payable by each NZFT to the IRD is understandable, to ensure the IRD is equipped to manage the higher disclosure standard, however, the international standard on this and whether other governments will charge similar fees for their AEOI obligations is yet to be seen.  New Zealand will be keen to ensure any fee payable is competitive.

Finally, the extension of the present AML regime is a planned development that was also intended prior to the recent focus on NZFTs and brings New Zealand in line with AML regimes elsewhere.

Ultimately, while the changes proposed by the review may, on first glance, seem dramatic to some, the changes should result in a strong, legitimate and compliant NZFT industry and continue to maintain our reputation as a compliant country.

We will keep you updated on developments and how the changes will be implemented, when the new legislation is brought before Parliament. 

If you would like further information or advice on this topic, feel free to contact Bethan Boscher by email  or call on (09) 9155458.

Disclaimer – this article prepared by Bethan Boscher (a Solicitor in JB Morrison, Auckland) is intended to provide a general overview of the area of law only.  It is not exhaustive, does not purport to cover all details and should therefore not be relied upon exclusively or be construed as personal advice.